Law & Disorder —

No data caps, no DOCSIS 3.0? TWC’s math doesn’t add up

Time Warner Cable suggests that DOCSIS 3.

According to Time Warner Cable's most recent annual report, the company has largely rolled out DOCSIS 2.0 across its hybrid fiber-coax network and "plans to deploy DOCSIS 3.0 selectively in its systems during 2009, which will enable TWC to deliver speeds significantly faster than currently achievable." But will it?

Alex Dudley, the company's vice president of public relations, has been tweeting like a madman recently, most of his tweets naturally concerning the data cap issue. When Stacey Higginbotham of GigaOm asked Dudley if the DOCSIS 3.0 rollouts were going ahead apart from the data cap trials, the response was surprisingly pointed—"it was scheduled as part of cbb [consumption-based billing] trial, but we all know how you feel about that." Ooh, snarktastic!

(Also, it's not the shrewdest thing a top PR man could say about an issue that has, over the last few weeks, attracted the attention of the grassroots, the press, the city of Rochester, and members of both houses of Congress. One thinks of disgraced Illinois governor Rod Blagojevich, who asked the court for permission to jet off to Costa Rica so that he could take part in a reality show called I'm a Celebrity, Get Me Out of Here!. The judge overseeing the case said, "I don't think this defendant in all honesty... fully understands the position he finds himself in.")

So is TWC threatening to take its DOCSIS 3.0 upgrades and go home without consumption-based billing? Who knows. In later messages, Dudley referenced his "flip but true" response and clarified a bit, saying that DOCSIS 3.0 hasn't necessarily been scrapped. The issue is "just that the rollout was scheduled with the trial and now all of it is on hold."

No DOCSIS 3.0 for now, then, while TWC comes up with some other deployment plan. He asserts over and over again that this is about money, and that the company needs more cash to upgrade its networks. When commentators pointed out that the company's broadband profits are going up even as expenses drop, the response was simply, "For now it is a very nice business... what we're saying is that we're seeing changes in it, and we want to make sure we keep up."

Luckily for TWC, one of the big expenses of "keeping up"—the actual DOCSIS 3.0 headend cards and new cable modems—are relatively cheap. We've seen estimates of $20-100 per customer, an easy expense to amortize, especially when pulling in "triple play" revenue (cable, phone, Internet) from subscribers.

TWC's main argument appears to be that, as bandwidth use rises, its costs go up—hence the fairness of consumption-based billing. But the DOCSIS 3.0 upgrades are generally fixed costs, and the internal TWC network is assuredly fiber optic already, so where do the extra fees come in? One obvious place to look is in TWC's connections to other networks, necessary to pass its customers' traffic along the Internet. Because of TWC's size, much of this traffic is likely to be peered with other large ISPs, costing the companies nothing (once the link is set up).

But TWC also pays "transit" costs to other networks with which it does not have peering arrangements, and these links do cost money. How much? The company's 2008 annual report appears to contain the answer. Page 83 has a chart showing TWC's contractual arrangements for 2009, and what the chart makes clear is just how little the company pays for bandwidth.

"Programming purchases," which makes up the bulk of the contracted expenses, refers to cable TV programming. Although TWC had to build an entire infrastructure to make cable TV work, pay these massive yearly fees for content, hire technicians, and do truck rolls, it still makes money on cable service.

With that infrastructure in place, offering data services like VoIP and Internet access is relatively cheap. And both are getting cheaper—as the company says in its annual report, "High-speed data costs decreased primarily due to a decrease in per-subscriber connectivity costs, partially offset by growth in subscribers and usage per subscriber." VoIP costs for TWC's digital phone service dropped (per person) due to a "decline in per-subscriber connectivity costs due to volume discounts received in 2008."

When we look at the breakdown on the chart, TWC Internet bandwidth contracts in 2009 are actually 10 times less than those for its digital phone service, and are one of the smallest expenses on the chart.

TWC keeps saying that it needs to do a better job educating customers about the need for the new billing system, and that educational initiative appears to have begun with advocacy by faux consumer groups. Not an auspicious start.

TWC officials have been reluctant to speak plainly with the press, content to keep asserting huge future expenses and uncontrollable costs. But the company's own numbers show that broadband costs are dropping even as traffic surges 40-50 percent a year. Internet bandwidth costs are miniscule. DOCSIS 3.0 upgrades are cheap.

87 Reader Comments

They are just looking to justify their bullshit, everyone knows that. They rolled out DOCCIS 2.0 without going to caps. They rolled out DOCCIS 1.0 without having caps. Why would 3.0 be different? Only because their are money grubbing assholes.

Thank you Ars for putting this graph and extended info for their 2009 budget out there for everyone to see. I imagine it was floating around in the public realm already, but putting a spotlight on it like this is pure win.

Originally posted by Kani:They are just looking to justify their bullshit, everyone knows that. They rolled out DOCCIS 2.0 without going to caps. They rolled out DOCCIS 1.0 without having caps. Why would 3.0 be different? Only because their are money grubbing assholes.

Did they upgrade to DOCSIS 2.0? The only thing that 2.0 changed was the upload speed (up to 30Mbps from 10Mbps) and I believe that they added IPv6 support.

My TWC Cable Modem is still using DOCSIS 1.1, and in our area, the max speed you can purchase is 15Mbps down and 2Mbps up.

This is just a company being greedy in a legalized monopoly, pure and simple. Especially when there is rarely any choice in who you can get Internet access from, raising rates while offering less service just screams illegal.

Awesome picture and my parents are switching over to FIOS and its not even because of the internet crap. We have had 3 technicians in as many weeks and none of them have fixed an issue with one of my houses TVs wont get signal yet it still records the show on the DVR. so f*ck'em

it's like they want to do an old bait & switch routine. "Hey, we have ultra high-speed services here! Base price is only blah-blah-blah!" Only after you get the service and see that indeed you do get that high band-width, if you actually USE it, then you'll be charged through the nose for it.

Originally posted by eldonyo:I am so glad I no longer have to put up with TWC!

Ditto. TWC doesn't even offer DOCSIS 2.0 here yet, let alone even think about going to 3.0. Now, don't get me wrong, I loathe AT&T as well. I just put up with AT&T because they're cheaper. I kicked TWC to the curb over 2 years ago and still glad I did it. The fastest Roadrunner plan TWC currently offers me here is 7Mbit Down / 512Kbit Up and I live in Milwaukee, so it's not exactly out in the stix. That's pretty much equal to the advertised rate I'm getting on my DSL service. The difference being that I rarely ever got close to the peak advertised bandwidth TWC advertises. The only times I did were on long, sustained downloads where it was able to ramp up to max speed, or when online at goofy hours of the day so as to avoid sharing bandwidth with the neighbors.

Go to Hell, TWC. Go directly to Hell. Do not pass Go. Do not collect $200.

Strictly speaking, I expect that the long term trend in an increase in bandwidth WILL result in less revenue for TWC. As it increasingly becomes feasible to watch TV on the web, actually high quality streaming, why are customers going to continue to pay for cable tv? They make a boatload of money now because of triple play plans, but that drops substantially when it shifts into just an ISP. The traffic caps were a convenient way of limiting their customers and forcing them to continue to consume the other services.

None of this, mind you, makes me sympathetic. Cable providers are greedy bastards and I am glad their business model is becoming obsolete.

Originally posted by Netcraazzy:Market forces will make TWC go to DOCCSIS 3.0. Once other cable companies start advertising the higher bandwidth tiers afforded by DOCCSIS 3.0 then TWC will have no choice but to follow.

That would work if there were other providers in the markets they are in. The problem arises when they're the only game in town. Then they're free to keep the speed at whatever they want, because the customer does not have another cable company to go to.

Originally posted by Netcraazzy:Market forces will make TWC go to DOCCSIS 3.0. Once other cable companies start advertising the higher bandwidth tiers afforded by DOCCSIS 3.0 then TWC will have no choice but to follow.

Exactly which market are you referring to, in which time warner must compete with any other cable company?

Thanks ars for pointing out how blatantly greedy and anti-competitive TWC is. This has nothing to do with data transfer costs, that's cheap. People already pay for what should cover hundreds of gigabytes per month. TWC doesn't like it, they want to use their position to get people to pay for premium services instead, and they shouldn't be allowed to do it.

I'd still like to see breakdowns of what the actual costs are, peering arrangements typically cost a company a fixed amount per month since they cover the cost of the equipment and maintaining it (just like the last mile), they do have to pay for upstream to other networks as the article notes, and i'd like to know exactly what that costs so TWC and the others can be put in their place once and for all.

See .. that's what I'm talking about .. the people on the street who aren't up on the issue ... when they hear about Time Warner and caps they buy into the "It costs so much to maintain it" story.

I mean think about it ... maybe you've lived in your house for 10 years ... You're probably sending them close to $1000 a year ... Nothings changed ... same cable line. $10,000 poorer.

They didn't little or nothing for improvement for you with your $10,000 ... just kept pocketing the money as profit and not making significant investments in infrastructure. You already paid for their improvements ... now they want you to pay again!

The aren't stupid. Speeds are getting high enough to consider watching TV over the internet (Hulu streaming, iTunes purchases, etc.) When that happens, their cable TV business will crash. The cable TV business is the core of their profits. Why should they shoot themselves in the foot. They will delay this as long as possible. The next thing they will try is to limit Hulu, etc. to cable subscribers only by forcing content owners to stop streaming content for free.

Originally posted by toddlorensinclair:See .. that's what I'm talking about .. the people on the street who aren't up on the issue ... when they hear about Time Warner and caps they buy into the "It costs so much to maintain it" story.

I mean think about it ... maybe you've lived in your house for 10 years ... You're probably sending them close to $1000 a year ... Nothings changed ... same cable line. $10,000 poorer.

They didn't little or nothing for improvement for you with your $10,000 ... just kept pocketing the money as profit and not making significant investments in infrastructure. You already paid for their improvements ... now they want you to pay again!

It's greed .. pure and simple ... no two ways about it.

... attitudes like this irritate me. Don't you think it costs money to run the network?

What do you think it costs them to fix an outage at 2 in the morning when they have to roll two bucket trucks and six guys out after some drunk hit a pole?

How about when lightning or power surges hit the node equipment and they have to replace a CMTS?

Fiber repairs when there's a cut? Upgrading capacity that you don't notice because of peer-to-peer (ab)use? How about paying all those people that maintain the routers, switches, and servers? And of course lets not forget general maintenance to an aging infrastructure of the physical cables - those things don't last forever, you know.

Then there's the truck rolls to whiny assholes like you who get all pissed off and jump up and down on their dick "BUT I PAY YOU $50 A MONTH COME FIX IT!!!" when it's not even their problem in the first place.

Get a grip. It costs a lot of money to run and maintain a cable network!

I'm not saying that they aren't making any money; they're a business it's what they do - but this attitude that so many people have where they seem to think that every penny that they charge is purely greedy profit is just completely insane.

This is exactly why we need to distinguish bandwidth caps from transfer caps. Bandwidth is physically constrained by the copper/fiber, but limiting transfer is completely arbitrary. Peering costs essentially nothing, so this is nothing but an obvious money grab.

QQ more boberz - a lightning strike that causes a replacement in a 100 mile radius happens how often? 5 times a year max? maybe.

general population of areas that only TWC services (in that 100 mile radius) - at least 100,000. If each of those people pay at minimum $50/month, TWC is making $5,000,000 per month gross. Thats the absolute minimum.

So, i say to you - screw you, I pay you $50 per month. COME FIX IT!

TWC's attitude towards their customers is abysmal and they somehow feel entitled to more money instead of having a justifiable reason to raise their prices.

From all the published reports, DOCSIS 3 isn't too terribly expensive. Installing new headend equipment yeah, consumer pays for a new DOCSIS 3 modem (no different than upgrading from 14.4k to 28.8k modems), reorganizing channels so you can have a few 6MHz channels grouped for bonding, etc. Maybe even splitting high traffic nodes if you really want your customers to have a great experience.

They wanted to cap bandwidth to stunt the growth of online video services that would bite into their cable business.

There is no reason for putting caps in place other than this. Bandwidth is not a limited resource for companies this large. It is virtually limitless with only the cost of the hardware to keep the pipes bigger.

What TWC should be doing is offering their own cable services over IP with various offerings to compete with Hulu and Netflix and the oncoming storm of HDTV over the net.

This is just going to make life harder for TWC's frontline employees, especially the ones that aren't fooled by all the rah-rah over CBB and can't sell it to the customers. From what I've been told by a friend of mine who works for TWC, there are employees complaining about CBB too...mostly because the caps are so ridiculously low and the company has clearly not put any thought into it at all, which means that the customer-facing employees will be the ones taking all the heat while Glenn Britt sends out e-mail after e-mail about how great things are.

ah this blows. I'm using comcast and im still poking along with docsys 1.x with speeds around 6-8mb/s (1.5mb/s up) and that's all fine and dandy but if Docsis 3.0 is around the corner, why the hell am I paying over $200 a month for pokey Docsys 1.x?? (I also get voip land phone service, and HDtv and two DVRs)

Oh and capping my stuff at 250gb a month. not really a cap, they just warn you not to do it again... 2nd time you're banned.

Originally posted by Boberz:... attitudes like this irritate me. Don't you think it costs money to run the network?

Yes, it does. We already pay for that, Time Warner wants even more.

quote:

What do you think it costs them to fix an outage at 2 in the morning when they have to roll two bucket trucks and six guys out after some drunk hit a pole?

How about when lightning or power surges hit the node equipment and they have to replace a CMTS?

Fiber repairs when there's a cut? Upgrading capacity that you don't notice because of peer-to-peer (ab)use? How about paying all those people that maintain the routers, switches, and servers? And of course lets not forget general maintenance to an aging infrastructure of the physical cables - those things don't last forever, you know.

Then there's the truck rolls to whiny assholes like you who get all pissed off and jump up and down on their dick "BUT I PAY YOU $50 A MONTH COME FIX IT!!!" when it's not even their problem in the first place.

Get a grip. It costs a lot of money to run and maintain a cable network!

I'm not saying that they aren't making any money; they're a business it's what they do - but this attitude that so many people have where they seem to think that every penny that they charge is purely greedy profit is just completely insane.

No one said that.

At this point, given what we know about the costs of running the network and transferring data upstream for customers, every penny that they would like to charge for data transfer as a toll road is profit to them. You know it, the situation is clear as day. TWC wants to benefit from being a granted monopoly and then turn their internet service into a toll road for reasons that amount to greed at best and more likely anti-competitive behavior.

We already pay plenty of cash for both the network and the data transfer FAR in excess of what each person actually uses. They ARE greedy.

I have to add my thoughts behind the comments about cable TV taking a hit when more folks begin watching stuff online. TWC hasn't expressly said that, but it seems like a fair jump in logic to think this is a HUGE factor why TWC rolled this mess out in the first place. Advertising revenue, cuts of pay-per-view revenue, whatever else...they stand to lose a bit of money if they don't stem the tide. They either have to adapt and overcome, or they have to make it extremely difficult for customers to find alternatives to "normal" TV and circumventing their cash cows. I don't know if the graph in the article actually parallels potential revenue from each cost area but it sure does at least roughly show TWC's investment into each area.

TWC is not JUST an ISP.

I would love Ars delving into this line of thinking and see how well it fits.